Capital Loss Harvesting
You can use capital losses to offset capital gains. If your losses exceed your gains, you can use up to $3,000 per year ($1,500 if married filing separately) to offset ordinary income (like your salary). Any remaining loss can be carried forward to future years.
Enter your gains and losses to see the result.
Exclusion of Gain From Sale of Main Home
This is one of the most generous tax benefits available. If you meet the requirements, you can exclude a significant amount of gain from your income.
Exclusion Amounts
$250,000
for Single, Head of Household, or Married Filing Separately filers.
$500,000
for Married Filing Jointly filers.
Key Requirements (The "2-out-of-5-Years" Rule)
To qualify, you must meet both the ownership and use tests:
- Ownership Test: You owned the home for at least 2 years during the 5-year period ending on the date of sale.
- Use Test: You lived in the home as your main home for at least 2 years during that same 5-year period.
- You haven't excluded gain from another home sale during the 2-year period before the current sale.
Exclusion for Qualified Small Business Stock (QSBS)
Section 1202 provides a substantial tax break for investors in certain small businesses. If you hold the stock for more than 5 years, you can exclude a large portion—or all—of your gain.
50% Exclusion
For QSBS acquired on or before Feb 17, 2009.
75% Exclusion
For QSBS acquired between Feb 18, 2009 and Sep 27, 2010.
100% Exclusion
For QSBS acquired after Sep 27, 2010.
Key Conditions: The stock must be from a C corporation, acquired at original issuance, and the corporation's gross assets must be $50 million or less at the time of issuance, among other requirements. This is a complex area, so professional advice is recommended.
Important Rules and Common Pitfalls
Navigating capital gains requires awareness of rules that can disallow losses or reclassify gains.
The Wash Sale Rule
You cannot deduct a loss on the sale of stock or securities if you buy "substantially identical" ones within 30 days before or after the sale. The disallowed loss is added to the cost basis of the new stock, postponing the tax benefit, not eliminating it.
Sales to Related Parties
You cannot deduct a loss from a sale or exchange of property directly or indirectly to a related party. This includes family members (like spouses, siblings, parents, children) and entities you control (like a corporation where you own more than 50% of the stock).
Gifts and Inheritances
The basis of property you receive as a gift is usually the same as the donor's basis. For inherited property, the basis is typically "stepped up" to its fair market value on the date of the decedent's death. This "step-up" can eliminate capital gains tax on appreciation that occurred during the decedent's lifetime.
